Bitcoin News: CFPB Report Makes Digital Currency Seem More Risky Than It Is

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Some negative Bitcoin news from the Consumer Financial Protection Bureau yesterday (Monday) – a blunt warning of all the dangers of Bitcoin – illustrates the uneasy relationship the U.S. government has with the digital currency.

The CFPB "consumer advisory," which encompasses all virtual currencies, effectively scares people away from them by presenting a laundry list of worst-case scenarios.

The CFPB also announced it had started accepting Bitcoin-related complaints from consumers.

"Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market," the report says.

The report dropped the Bitcoin price to as low as $563, a 4.5% fall from where it had been at $589.45.

The CFPB doesn't say anything new to those already familiar with digital currencies, but is aimed at those thinking about buying some.

The problem with this sort of thing is that it only tells you what can go wrong. You could write a similar report on the dangers of using cash and credit cards. But people still use those forms of payments because they recognize the benefits and know how to cope with the risks.

And while it's true that warning consumers is the CFPB's job, on some points the lack of context makes Bitcoin sound more risky than it is.

Some examples:

Beware of hackers: Some poorly managed Bitcoin exchanges have been hacked and their bitcoins stolen (like Mt. Gox), but individual wallets are much harder to crack. And as a result of those past breaches, up-and-coming Bitcoin companies have placed a huge emphasis on security. Meanwhile, hackers have been doing a pretty good job of also stealing credit card data, as customers of Target Corp. (NYSE: TGT) found out last fall.

Bitcoin is volatile: The CFPB pointed out that the Bitcoin price fell 80% in one day earlier this year. Bitcoin is more volatile than most other investments, and certainly most other currencies, but most merchants who take Bitcoin have negated this concern by converting the bitcoins at the time of the transaction.

Bitcoin is not really anonymous: Yep, early Bitcoin news reports about the digital currency's reputed anonymity weren't quite true. But a Bitcoin transaction doesn't contain any personal information or payment data that thieves can use to make large purchases, like, say, credit and debit cards do.

No central government control: (See quote above.) While government regulators always point to this as a flaw, the decentralization of Bitcoin is very much intentional, and a reaction to the bad habits of central banks to devalue fiat currencies as an economic "stimulus" or to pay off government debts. Sorry, CFPB, this is one of the advantages of Bitcoin.

It's unfortunate the CFPB report can't go into the advantages of using Bitcoin (other than to note that some might exist).

But for consumers to make an informed choice about whether they want to adopt Bitcoin, and how they might want to use it, they need to know about the benefits as well as the risks.

That's why Money Morning Tech & Defense Specialist Michael Robinson put together a full report on Bitcoin, in which he explains why the digital currency is so revolutionary as well as how to invest in it safely. To learn more about this powerful report, click here.

For more Bitcoin news and insights, follow me on Twitter @DavidGZeiler.

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